In Accounting for a Contingent Liability, If the Likelihood of the Obligation

question 42

Multiple Choice

In accounting for a contingent liability, if the likelihood of the obligation is possible, a company must

• A) recognize the liability and report it on the balance sheet.
• B) provide disclosure in the footnotes to the financial statements.
• C) not recognize or disclose the liability until it is certain and the exact amount is known.
• D) do nothing.

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Definitions:

Refrigerator

An appliance used for keeping food and drinks cold.

Deficiency

A lack or shortage of a necessary element or quality.

Chattel Mortgage

A loan arrangement in which an item of movable personal property acts as security for a loan, with the lender holding an interest in the property until the loan is repaid.

Bill Of Sale

A legal document that transfers ownership of personal property from the seller to the buyer.